Owners near foreclosure can rent from Uncle Sam

By ALAN ZIBEL

Published 5:06 pm, Thursday, November 5, 2009

WASHINGTON - Can't pay the mortgage? You still might be able to stay in your home. Government-controlled mortgage company Fannie Mae is going to give borrowers on the verge of foreclosure the option of renting their homes for a year.

The change announced Thursday could give a temporary break to thousands of homeowners, but critics question whether it will only add to the mushrooming losses at the company, which has received billions in taxpayer money.

The new "Deed for Lease" program will allow homeowners to transfer title to Fannie Mae and to sign a one-year lease, with potential month-to-month extensions after that. It helps save money because the lender does not need to complete the often lengthy and time-consuming foreclosure process.

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It also does less harm to the borrower's credit record.

"It shows that you put your best effort to work out a solution," said Gabe Del Rio, director of homeownership at Community HousingWorks of San Diego, Calif.

However, Mike Himes, director of homeownership services at NeighborWorks Sacramento, Calif., said the industry should push harder to modify loans at lower monthly payments. "The preferred option is allowing people to retain ownership," he said.

Fannie Mae executives said the rental program is designed to help delinquent homeowners who don't qualify for a loan modification but still want to stay in their homes.

To qualify, homeowners have to live in the home as the primary residence and prove they can afford the market rent, which will be established by the management company running the program.

Rents are based on current market rates.

Still, based on a similar program, the effort is likely to attract a relatively small number of homeowners. In the first nine months of the year, Fannie Mae took ownership of nearly 2,000 properties through a process known as a deed-in-lieu of foreclosure. That pales in comparison with the 90,000 foreclosed properties the company repossessed in the period.

The announcement came as Fannie Mae asked for an additional $15 billion in government aid after posting another big loss in the third quarter as the taxpayers' bill from the housing market bust keeps getting bigger.